May 09, 2013

What Would You Be Willing to Do to Retire Early?

Moved from Michigan to Florida since Florida has no state tax income. (FYI, it also has nicer weather.)

Sold his car and takes public transportation. This is interesting to me since he's a "car dealership service department clerk."

Started eating "noodles and sandwiches" instead of steak and potatoes. Not a bad idea IMO (to cut down on food costs), but you don't want to wreck your health by eating unhealthy food (which it sounds like he's doing in part.)

He earns $50k a year and tries to save 60% to 70% of his income. He then invests in dividend growth stocks and plans to use them to fund his retirement.

If he keeps up both the frugal living and the investing, he thinks that he can retire at 40.

Overall, I commend his desire to cut expenses and live frugally, and I'm glad it works for him. For me, it's a bit too Spartan.

Yes, I am all for controlling expenses, investing as much as possible, and retiring early. But do I want to live 40 years eating peanut butter and jelly sandwiches just so I can quit work and...eat peanut butter and jelly sandwiches? For perspective, he's not going to retire RICH -- he's going to be able to retire at his current standard of living -- which is not great IMO. I'd prefer a much safer (and much more luxurious) retirement.

But his example does raise an interesting question. Consider:

Most people would like to be able to retire early.

Most people would not like to live like a pauper both before and after retirement in order to be free from work (what would you do anyway with all your free time, raid the trash bins for food?)

So where's the balance?

It's a highly personal question and I'm guessing the responses will be completely unique. For me, I'd rather:

Earn a great income doing something I like (versus an average income doing something I don't enjoy).

Save, give, and spend to enjoy life a good amount along the way.

Ease into early semi-retirement between 50 and 55 (I think I still want to work in some capacity no matter my age).

Have plenty of income to allow me to retire completely if I like while also having the freedom to do some things I want to (like travel.) I certainly don't want to be pinching pennies in retirement -- especially since one major expense can derail finances pretty easily if you're playing it too close to the margin.

Before I close, I found this quote interesting:

The average retirement age is 59.7 for men and 57.2 for women, according to a 2012 MetLife survey of baby boomers. And a Boston College study found that most 30 year olds' savings won't be enough to retire even by age 62. Only 20 percent of households led by 30-39 year olds would be prepared to retire by 62, according to the study.

The average retirement age is below 60? Really? That seems extremely young to me.

So, what's your take on this issue? What is the balance for you between enjoying life now and enjoying it during retirement?

Comments

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Average retirement age at the moment takes into account a generation that didn't heavily attend college, so if you started working around 18 it seems normal to retire by 58.
I wouldn't mind going carless or moving to a sunnier state but the diet, no way. He is damaging his health and that may cost more in the long term. Eating a healthy diet on a budget is possible, just considering a tuna sandwich, if he buys store bread, a jar of mayo and a can of tuna, it is more expensive than a lentil stew with vegetable and meat, that comes to $1 per serving.

Maybe things will change, but as of right now, I can't imagine retiring until I'm actually unable to work. I'm saving and investing so that I have the freedom to take more risks in the future, like start a business, change careers, or renegotiate my job description.

As for frugality, I spend about twice what this guy does per month. I don't know if that's frugal or not - certainly not on a world scale - but having maintained that level of consumption for years, I can say I'm happy with it. It lets me eat well, and travel a couple of times per year. I don't have much appetite for a grander lifestyle, so I might as well save or give the rest.

So it's not really a question of balance for me. I feel like I'm getting what I want in both lifestyle and retirement-savings, without much of a tradeoff between the two. I feel very fortunate for that - I'm interested in personal finance, obviously, but I don't think I'd enjoy being driven by a financial objective.

I am in favor of the semi-retirement model you have mentioned before. I plan to continue working at least part-time but "semi-retire" around 50. That way I am still young and healthy enough to enjoy my retirement more. But I dont think I could ever give up work completely.

It sounds like that guy has an awesome plan. I mean, mines a little different, but assuming that he's not sacrificing his health, I don't see why it wouldn't work. There's also the possibility of living a Spartan lifestyle until he's 45, then he could actually increase his spending in early retirement.

We had planned for my husband to retire a few years earlier than usual (at age 60) but recently got a course correction when his employer offered an early buyout (package including a year's salary and participation in the group health insurance) for qualified employees over age 55 who met certain criteria. My husband is 54 1/2, so he could not take the package, but we realized that if the offer had come 6 months later he most certainly would have wanted to. We've reassessed our goals and now we plan for him to be able to retire at 58. This will mean that our projected income will be a bit less than it would have been at 60 so we have scaled our budget back to well below the amount we expect to have then and are going to have three years of living on this amount of money just to be sure that we are really prepared. We are discovering that cutting things we really don't enjoy/don't care about is providing plenty of savings while allowing us to continue those things that are important/that we enjoy. I wish we'd done this more carefully a decade or two ago! We are spending less on things like groceries, but we are likely eating more healthfully than ever, as prepackaged snack foods and the like don't fit into the budget but fresh ingredients that I cook myself do.

Some of this guys 'sacrifices' seem really unnecessary: PB&J is a cheap AND lazy way to eat, if you take a little time you can eat cheap and healthy and (once you gain some experience) tasty.

The moving for better weather makes sense, but as a sacrifice for no income tax I don't buy (his state tax would be about $2K, given you can't get the exact same job for the exact same pay when you move out of state that difference seems negligible to whatever moving casts/pay change would occur)

You said "Earn a great income doing something I like (versus an average income doing something I don't enjoy)". What exactly is the trade-off here? Seems like rich and healthy vs poor and sick.

This guy has a goal and is pursuing it. Good for him - if he is not feeling very deprived why not. It doesn't seem he has gone far into the junk food area - rice and beans and PBJ and deli meat now and then is not gourmet by any means, but not destroying his health.

We believe in reaching a balanced spending pattern, where you don't spend less than you want now to save for future, and you don't spend as much now to be forced to spend less than you want in future. For everybody this is different, ours is definitely higher than the one in the story, but we can afford it. And I am still investing in my career and don't see the point in retiring before kids are in college, so that puts me around 60 (my husband is stay at home dad, so for him the challenge will be rather finding something to do after kids start school)

My point was that if you manage your career (as I have done and I advise others to do), you can make a GREAT income and then you don't need to scrimp as much to retire early. And you can do this while working at a profession you like. That's what I am doing.

I wonder how much that average age is skewed by older generations who might not had gone to college and had the benefit of a somewhat nice pension combined with social security to provide for them. Beyond that, I do not think that early retirement is for me. I admire the hard work to get there and of course support investing and living frugally, but I'd rather have a balance in order to enjoy life now and in retirement.

For me, the strategy to retiring early had two parts: live below our means AND increase earnings. We wouldn't have been able to retire early without doing both. I was able to take early retirement at 49, at which point I was eligible for retiree health insurance from my company. (My spouse had "retired" at 37 while I still working.

For reference, we chose to live a comfortable lifestyle, and not a spartan one.

I enjoyed my work and got a great deal of satisfaction from it. I was also working with a great bunch of engineers helping to create better weapons to keep America safe. I was also learning new things all the time and improving my skills from being in symbiotic relationships with other guys in my department.

It's one thing being able to retire financially but it's a whole other issue deciding what your retirement life is going to be. It seems to me that it has to be a person that doesn't like his job and is poorly educated that would want to retire at 40 and life a spartan lifestyle.

I was planning to retire at 59 but in 1992 when I was 58 the Cold War had recently ended and the defense and aerospace company where I worked as a senior staff engineer needed to reduce its workforce and offered a Golden Handshake to salaried workers that would take early retirement. Their offer was too good to refuse so I gladly took it, used the money to pay off the loan on our home and happily became a retiree with a nice pension.

We were well prepared for retirement, continued our normal life but started taking more overseas vacations. I was also eligible to stay in my company's group insurance plan and am still in it 21 years later.

An unanticipated benefit was that I took over managing all of our investments, learned how to become an expert at it, and made a huge amount of money when the dot.com bubble started building and I was able to ride it up and knew just when to start getting out. If my money had still been in my company 401K I would have never been able to do that and wouldn't be a multi-millionaire today.

I turn 40 next month, and am looking at our first child being born within 1 week of my 40th...

We could retire now if we really wanted to as we have a net worth just over $3M USD, but with a baby coming and perhaps more on the way I feel better to keep working for a little while longer. We just bought a new larger place for more space and that was a major cash outlay. The place will need a little bit of work so that is even more to spend, so I really feel better to have a strong cash flow coming in for several years more.

So retiring at age 40 is a great goal, until you get to 40 and then realize that continuing to work is not a bad option at all.

I guess I can applaud him for having a goal and sticking to it but this is definitely not something I can see for myself. My concept is that a "life" is your whole life and worth living fully at all points on that timeline. It's all a balance and to me this guy's balance is all out of whack.

I'd also be worried that there are shades of OCD behavior going on here as it often manifests itself in excessive frugality and thriftiness. He may find when he reaches 40 that he still can't bring himself to spend.

This guys plan isn't really too bad. I bet he changes it as time goes on. I learned when I was in college how cheap I could live. I'm not as frugal as I was then. I eat healthy and I buy a new vehicle every 10 years or so. But I still manage to save about half my earnings. I've never made over 60k a year.I don't find it hard at all to live a simple life and save. He seems a bit extreme, but he's on the right track. Maybe he'll figure out a little extra work would be more worthwhile than a poor diet and no car.

The average retirement age being a little bit below 60 is not at all surprising to me. Consider disability.
Nobody plans for it, but lifestyle choices over a few decades or random bad luck lead to a significant number of us who will be physically unable to work until the standard retirement age.

Statistics on the 'average' are misleading. I suspect the majority who retire early are not multi millionaires itching to get on their boat and sail around the Caribbean, but rather people government and law enforcement jobs whose full retirement age to collect a pension is 55 and others in their fifties whose diabetes, COPD, cancer or other illness renders them unable to work.

You need to enjoy life now and after retirement. You have to find your own balance and see what make you happy.
Ramen and PBJ everyday would suck for me. I like good food and I want to be able to at least cook good food at home.
He should learn how to cook healthy meals and I think he'll be all set. If he could earn more that would be a huge boost.
Also retirement doesn't mean you won't make any money at all. He can always try to make money doing something he enjoys.

I don't see any real benefit to going to that extreme. I don't want a life of near poverty subsistence. Sure early retirement is great but I'd rather work a little more and have a signficantly better standard of living. The article says he now spends $200-$250 a month so if he's eating ramen, PB&J and beans/rice then he's doing awful job of grocery shopping.

Overall I applaud his efforts, but would have some questions for him. What about dating? I think it's impossible to find a partner who agrees with this lifestyle. Even so, marrage? Kids? College for kids?

If there's anything I think this guy should skimp on, it's rent, not food. He pays $900 a month for rent in FL, which seems kinda high.

However, as others have said, he needs to learn to eat cheaply AND nutritiously. He's likely to have health issues on a steady diet of raman & PB&J sandwiches. Lentils, carrots, and whole wheat pasta are just as cheap, or cheaper, and are also healthier.

The man mentioned in the article linked above also has a blog which is among the group I follow in addition to your's, FMF. His blog is named Dividend Mantra and it details his frugality and investment plan focusing on investments in dividend growth stocks.

I too am planning on early financial independence. I'm 27 now and project to be financially independent in my early 30's. I realize that my spending will probably grow if I have a family so I will likely continue working until I have a good comfort factor with my financial status.

My guess is the PB&J and Ramen statement was simply said to be outrageous and bring some additional traffic to the article and his blog (which he succeeded in doing). With $200-250/month for food, you can actually eat very well, especially if you are a smart shopper.

I personally dont have my main life goal of not working. Above that, I put having and raising a family, travel, hobbies, and having the satisfaction of developing my skills and being successful working at a career doing valuable and interesting things (I lead cancer research programs at a University and also teach young people hoping to become doctors and researchers themselves someday).

For many years while i was in school and doing fellowships, I lived without a car, rented the cheapest apartments, had no cable tv, eating ramen and cheap mexican food and only bought clothes from thrift stores etc. So I agree that it is totally possible to live for very very cheap and most people are trapped by their idea of what is necessary.

But It sounds to me like this guy will live a fairly boring and unsatisfying life both before and after he "retires"....doesnt seem like much of a goal. I'd be more impressed if he sacrificed for something worthwhile...why doesnt he give all his money that he saved to a charity? Why doesnt he use his smarts and ingeniuity to think up a way make the world a better place? or he could adopt and give an orphan child a home? He is only focused on just himself, which seems distasteful to me.

I have to say I'm more in Mc's camp with respect to hardly being inspired by the goal, at least as presented in the article, being only about no longer working. I always envisioned retiring to do or pursue something else, generally something I personnally had interests in and could make a bit of money at but hardly enough to really support a family. As described, all this guy is apparently looking forward to is an occasional vacation with his parents and for his sake I'm hoping that's not all he plans or will do.

If you want a more positive perspective I'd recommend the "early retirement extreme" blog. Jacob has a recent article describing what he's done since his early retirement. He'll also be frank that he's picked up another job in a field he likes, but not because he needs the money, but because he finds the work interesting. While I still don't think what he's done is what I would want or would fit with my family and goals, his perspective was beyond just "not working" and worth considering IMHO.

Just to clarify any confusion that might exist between myself and "Young Limey" and "Limey Junior".

The word Limey is a colloqial term used in the old days for British sailors because the Royal Navy started carrying kegs of lime juice on their ships several hundred years ago and their crews were issued some every day to prevent a fatal disease called "Skurvy" caused by a vitamin C deficiency when fresh fruit was unavailable on very long voyages..

I was born in England in 1934 so I figured that "Old Limey was an appropriate pseudonym.

My three children do not post on this blog - they are all "Facebook" users (which I am not) and of the three, one was born in Canada and the other two in the USA.

It would be great to retire early. However, eating unhealthy food to cut on expense to do so makes no sense. In a sense he is shortening his life span, so when he retires earlier, he will also die earlier. In that sense you will have the same amount of retired life as you would if you just ate healthy and retired later.

@Bo Manry
I couldn't agree more!
Many Americans are killing themselves by overindulging in unhealthy foods. The food manufacturers are also cooperating in this by adding loads of sodium, sugar, fat, and preservatives to their products because that's obviously what many Americans have become addicted to.

The most dangerous places in a supermarket are the center aisles where all the fast food and microwaveable items are located. Actually, eating these packaged products are more expensive than buying fresh fruits and vegetables and cooking your own healthy meals minimizing meat and using fish & chicken instead. Obesity and Diabetes have almost reached epidemic proportions.
Thank goodness we have government food labeling for those that take the trouble to read it.

This guy went to college (to become a clerk at an auto dealership?) and it's costing him $200 per month to repay. Rents a $900 per month dwelling. He is saving less than $30K per year, I'm guessing his actual spending is close to $2k per month. Hopes to stay healthy. Doesn't plan on children. Wants to take long trips and play golf with his parents.

What I take from this article is the math doesn't add up for this 30 year old to retire at 40.

His blog 'about me' page says:
" I entered college without a clear picture of what I wanted to accomplish, and therefore lacked the focus necessary to get anything out of it. My mother died in my junior year of college. Due to this event and my aforementioned lack of focus and clarity, I left college for an unknown future with almost $30,000 in student loan debt."

A LOT Of people end up in that situation with 'some college' and student loan debts.

"Started eating "noodles and sandwiches" instead of steak and potatoes. Not a bad idea IMO (to cut down on food costs), but you don't want to wreck your health by eating unhealthy food (which it sounds like he's doing in part.)"

I think this is more common than you think!!! Maybe most people aren't this drastic, but what is the purpose of saving for retirement if your diet will kill you by 50! Take care of your heath!!!

2 Corinthians 9:8 (NLT) reads "God will generously provide all you need. Then you will always have everything you need and plenty left over to share with others."

It seems a bit selfish to want to live a meager lifestyle so you can hoard most of your earnings for early retirement and then live your golden years in scarcity. This gentleman may be happy and content, but who is he blessing? I believe God wants to bless us with MORE THAN ENOUGH, so we can share with others who are less fortunate. The Bible says we are "blessed to be a blessing."

Work is healthy for the body. I pray that I can work, in some capacity, for the rest of my life, even if I become a billionare.

I would rephrase the question and ask: what do you really want to do with your life, and what effort should you take in order to be able to do just that?

If retirement at 40 is really it, then sure go for it, but make sure you know what exactly you want to retire to – getting tanned by the pool seven days a week will not keep most of us happy for a long time. Also, wrecking your health or leading otherwise unhappy life in order to achieve your goal is probably not worth it – there must be a more balanced way to achieve your goals.

Happiness is what most of us really strive for in life, and there are many things that make us happy. The sources of happiness vary a lot from a person to another. Each of us just needs to figure out what really makes us happy and then do the necessary to pursue those sources of happiness. And while we are at it, it's good to keep in mind that the ultimate goal is that happiness - not frugality, wealth, or even retirement at 40.